September 10, 2015

New Justice Department sound and fury about white-collar prosecutions signifying....?

The interrupted question in the title of this post is my first-cut reaction and uncertainty in response to this front-page New York Times report on new Justice Department guidance concerning white-collar prosecutions. The NYTimes piece is headlined "Justice Department Sets Sights on Wall Street Executives," and here are excerpts:

Stung by years of criticism that it has coddled Wall Street criminals, the Justice Department issued new policies on Wednesday that prioritize the prosecution of individual employees — not just their companies — and put pressure on corporations to turn over evidence against their executives.

The new rules, issued in a memo to federal prosecutors nationwide [which can be accessed here], are the first major policy announcement by Attorney General Loretta E. Lynch since she took office in April. The memo is a tacit acknowledgment of criticism that despite securing record fines from major corporations, the Justice Department under President Obama has punished few executives involved in the housing crisis, the financial meltdown and corporate scandals.

“Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates, the deputy attorney general and the author of the memo, said in an interview on Wednesday. “It’s only fair that the people who are responsible for committing those crimes be held accountable. The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.” Photo

Though limited in reach, the memo could erase some barriers to prosecuting corporate employees and inject new life into these high-profile investigations. The Justice Department often targets companies themselves and turns its eyes toward individuals only after negotiating a corporate settlement. In many cases, that means the offending employees go unpunished.

The memo, a copy of which was provided to The New York Times, tells civil and criminal investigators to focus on individual employees from the beginning. In settlement negotiations, companies will not be able to obtain credit for cooperating with the government unless they identify employees and turn over evidence against them, “regardless of their position, status or seniority.” Credit for cooperation can save companies billions of dollars in fines and mean the difference between a civil settlement and a criminal charge....

But in many ways, the new rules are an exercise in public messaging, substantive in some respects but symbolic in others. Because the memo lays out guidelines, not laws, its effect will be determined largely by how Justice Department officials interpret it. And several of the points in the memo merely codify policy that is already in place.

“It’s a good memo, but it states what should have been the policy for years,” said Brandon L. Garrett, a University of Virginia law professor and the author of the book “Too Big to Jail: How Prosecutors Compromise With Corporations.” “And without more resources, how are prosecutors going to know whether companies are still burying information about their employees?”

It is also unknown whether the rules will encourage companies to turn in their executives, but Ms. Yates said the Justice Department would not allow companies to foist the blame onto low-level officials. “We’re not going to be accepting a company’s cooperation when they just offer up the vice president in charge of going to jail,” she said.

Under Attorney General Eric H. Holder Jr., the Justice Department faced repeated criticism from Congress and consumer advocates that it treated corporate executives leniently. After the 2008 financial crisis, no top Wall Street executives went to prison, highlighting a disparity in how prosecutors treat corporate leaders and typical criminals. Although prosecutors did collect billions of dollars in fines from big banks like JPMorgan Chase and Citigroup, critics dismissed those cases as hollow victories.

Justice Department officials have defended their record fighting corporate crime, saying that it can be nearly impossible to charge top executives who insulate themselves from direct involvement in wrongdoing. Ms. Yates’s memo acknowledges “substantial challenges unique to pursuing individuals for corporate misdeeds,” but it says that the difficulty in targeting high-level officials is precisely why the Justice Department needs a stronger plan for investigating them....

Ms. Yates, a career prosecutor, has established herself in the first months of her tenure as the department’s most vocal advocate for tackling white-collar crime. She foreshadowed plans for the new policy in a February speech to state attorneys general, in which she declared that “even imposing unprecedented financial penalties on the institutions whose conduct led to the financial crisis is not a substitute for holding individuals within those institutions personally accountable.”...

While the idea of white-collar investigations may conjure images of raids of corporate offices by federal agents, the reality is much different. When suspected of wrongdoing, large companies typically hire lawyers to conduct internal investigations and turn their findings over to the Justice Department. Those conclusions form the basis for settlement discussions, and they are likely to take on greater significance now that companies will be expected to name names....

Still, even if the Justice Department’s effort succeeds, it will not automatically put more executives behind bars. Mr. Garrett, the University of Virginia law professor, analyzed the cases in which corporate employees had been charged. More than half, he said, were spared jail time.

I am going to need to read the new Yates memo a few times before I will have any sense of whether and how this new guidance to federal prosecutors is likely to really "move the needle" with respect to white-collar prosecutions. But, in part because my white-collar expertise and experience is at the sentencing stage after an individual has been charged and convicted of a federal economic crime, I am not sure I will ever be able to see clearly from the very back-end of the federal criminal process how much this memo could alter what typically happens at the very front-end of the federal criminal process in the corporate crime world.

In turn, I would be grateful to receive (in the comments or off-line) input from persons with more experience than me on the front-end of corporate criminal investigations about whether this Yates memo signifies much or not so much in the white-collar world. If nothing else, I suspect the Yates memo will prompt many "client alert memos" from big corporate law firms to their corporate clients, and perhaps what those client alerts say about the Yates memo could matter as much as what the Yates memo itself says.

UPDATE:At this link one can now find the text of the big speech Deputy Attorney General Sally Quillian Yates delivered today at New York University School of Law concerning DOJ's "New Policy on Individual Liability in Matters of Corporate Wrongdoing." White-collar practitioners will want to read the speech in full, and here is one thematic paragraph from the heart of the text:

But regardless of how challenging it may be to make a case against individuals in a corporate fraud case, it’s our responsibility at the Department of Justice to overcome these challenges and do everything we can to develop the evidence and bring these cases. The public expects and demands this accountability. Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation. We could be doing a bang-up job in every facet of the department’s operations — we could be bringing all the right cases and making all the right decisions. But if the citizens of this country don’t have confidence that the criminal justice system operates fairly and applies equally — regardless of who commits the crime or where it is committed — then we’re in trouble.

Comments

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